A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Cost of Living Rider

Explanation:

In insurance terms, a rider is a provision that adds or changes benefits to a basic policy, for example, a rider can restrict certain coverage, or provide additional coverage.

The cost of living rider basically increases the benefits received by a policy holder if the cost of living (inflation) increases. This cost of living is generally determined by the CPI calculated by the Bureau of Labor Statistics.

The Policy of Insurance policy that is sensitive and reflects the inflationary changes in a society is called the Insurance Inflation Protection.

Explanation:

Insurance Inflation protection is an insurance policy feature in which the value of benefits increases by a pre-defined percentage for example the (7%) rate at specific time periods to keep up with inflation.

Consequently, the effect of inflation on insurance companies is that the renewal of the same number of exposures in future years generates higher written premiums. In the long run, insurance costs will keep pace with the rate of inflation, even though in some years insurance will exceed or lag the overall inflation rate.